Bankrupt country, bankrupt government: a lesson in financial consequences for Ireland

daily star useless gobshitesThe Daily Star probably summed up most clearly the public opinion of the Irish government in its headline the other day.

However, it’s not the doing of a single government that has driven Ireland to bankruptcy: it has taken years of nonsensical decisions to get them here and it will take years if not decades to get them out of this mess.

For many years now the key skill in Ireland seems to have been to screw as much as possible out of Europe (ie everyone else) to finance a massive growth in the Irish economy. Until recently signs were everywhere announcing that one project or another was 85% financed by one EU fund or another.

That worked well in the case of infrastructure projects like the Dublin to Belfast motorway which replaced a truly naff road from Dublin to the Irish border that existed before. The problem is that it was only those European financed projects that went ahead and at almost every other point on the border you notice that you’ve crossed the border when the quality of the road goes down dramatically. The snag with these projects is that 1) only the capital costs are financed so Ireland now has a whole lot of motorway that it needs to pay to maintain and 2) now that Ireland has been replaced as Region 1 country by all the new eastern bloc countries it is not only not getting finance for its own infrastructure projects but needs to pay for those elsewhere.

Then there was the fiasco of untold numbers of “tax breaks” (ie bribes) for, mainly, American multinationals to establish themselves in Ireland. When the restrictions on those “tax breaks” ran out, Dell relocated almost immediately to Poland. In effect this bribe money (for there is no other way to describe it) was used by those companies to pay the salaries of the employees ie the Irish governments were simply borrowing to pay themselves. Quite why they didn’t realise at the time that this was never going to be a workable long term strategy is beyond me.

And, of course, all the above stoking of the economy meant that salaries rose and so therefore did house prices. Massively. Thus the banks were drawn into this Ponzi scheme. Like all such schemes, it looked like a no-lose situation. Like all such schemes, the money ran out. And like all such schemes, it collapsed in quite a spectacular manner, the full extent of which has yet to be seen. With increasing house prices comes increasing confidence and that surely led to increased personal borrowing in Ireland.

Sadly, this is going to be a very, very hard time for the Irish. Cuts and asset sales will be the order of the day for many years. The banks will probably be the highest profile casualties with the breakup of the non-Irish empires of AIB and Bank of Ireland looking like the first of many sales to come (already Bank of Ireland (UK) has been separated out). Cuts in a range of social security benefits and of civil service salaries are certain as are the inevitable protests against them. Gone too is any semblance of sovereignty over their own affairs. Not only are Europe and the IMF taking control of key aspects of life in Ireland but so too is the British government.

Much as I wouldn’t want to live in a united Ireland, I do feel for our friends in Ireland on this last point and even though Britain is doing it for selfish reasons (no way could it cope with a mass exodus of Irish to the UK), I’m sure that there will be a feeling that depending on Britain is a massive step backwards.

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